Принципы корпоративных финансов

Бакалавриат 2020/2021

Статус: Курс по выбору (Программа двух дипломов по экономике НИУ ВШЭ и Лондонского университета)

Направление: 38.03.01. Экономика

Кто читает: Международный институт экономики и финансов

Где читается: Международный институт экономики и финансов

Когда читается: 4-й курс, 1-4 модуль

Формат изучения: с онлайн-курсом

Преподаватели: Димова Елена Анатольевна, Карр Сильвен Жан Паскаль, Кестнер Ирина Владимировна, Пирогов Никита Константинович, Романиди Кристина Семеновна, Собченко Олег Евгеньевич, Улугова Азиза Эркиновна

Язык: английский

Кредиты: 10

Контактные часы: 112

Full Syllabus

Abstract

The course develops a theoretical framework for understanding and analyzing major financial problems faced by modern companies in today’s market environment. The course covers basic models of real assets valuation and investment projects analysis, capital structure and various types of corporate capital employed, decisions regarding payout policy and mergers and acquisitions, risk management and hedging. It provides the necessary knowledge in evaluating different management decisions and their influence on corporate performance and value. The course requires existing knowledge in micro- and macroeconomics, accounting and banking. It is based on lectures, seminars, case studies and self-study. “Principles of corporate finance” is a two-semester course designed to prepare students for the University of London examination.

Learning Objectives

The main objective of the course is to provide a conceptual background for corporate financial analysis from the point of corporate value creation. The course develops a theoretical framework for understanding and analyzing major financial problems of modern firms in the modern market environment. The course is focused on developing skills in analyzing corporate behavior in capital markets and the principal/agent relationship at play when raising funds, allocating capital and distributing returns. It provides necessary knowledge in evaluating different management decisions and their influence on corporate performance and value.
At the conclusion of the course, students should be able to: • solve problems from the professional sphere based on analysis and synthesis; • work with information: to find, evaluate and use information from various sources, necessary to solve professional problems in the field of corporate finance (capital budgeting, financing policy, payout policy, M&A motives); • communicate, express their thoughts orally and in writing on basic topics of corporate finance; • organize the activities of a small group created for the implementation of a specific project; • use financial, accounting and other information contained in the statements of companies for making management financial decisions (regarding investments, capital structure, payout policy).

Expected Learning Outcomes

Understand the differences between financial and accounting models of corporate analysis
Understand the principles of Fisher separation theorem
Be able to analyse optimal physical and financial investment in perfect capital markets
Be able to derive the Fisher separation theorem
Understand the role of the no-arbitrage rule in the corporate finance
Outline the main features of risky debt and equity
Derive and discuss the Modigliani–Miller theorem
Analyse the impact of taxes on the Modigliani–Miller propositions
Understand the effect of corporate and personal taxes on capital structure
Be able to write down the relationship between debt, equity, the unlevered return on the firm, and the levered return on the firm
Understand what happens to equity returns, and the weighted average cost of capital as leverage increases with and without taxes
Draw a link between Modigliani–Miller’s 1st and 2nd propositions
Find the equity beta of a firm by unlevering and relevering the equity beta of a comparable firm with different capital structure.
Be familiar with debt overhang and risk-shifting problems
Calculate the agency cost of debt in stylised settings
Discuss the effects of asymmetric information on capital structure
Explain the intuition behind the pecking order theory of finance
Be able to calculate the adjusted present value
Understand the factors determining optimal leverage
Be familiar with the trade-off and pecking order theories
Show that dividend policy (and share repurchases) are irrelevant to firm valuation under the Modigliani–Miller assumptions
Be able to show the irrelevance of the dividend policy under Modigliani–Miller assumptions
Be familiar with the stylized facts of dividend policy
Be familiar with the clientele model of dividends
Be familiar with the effects of asymmetric information and agency costs on dividend policy
Compute present and future values of cash-flow streams and appraise projects using the NPV rule
Evaluate the NPV rule in relation to other commonly used evaluation criteria value stocks and bonds via NPV
Compute and apply the net present value rule to evaluate projects
Compute and apply the internal rate of return criterion
Be familiar with payback, discounted payback rules and profitability index
Understand the limitations of different investment decision making criteria
Understand the concept of Economic Value Added and the relation between EVA and the NPV
Apply the IRR criterion to evaluate projects
Explain what real options are
Explain and calculate the source of option value
Understand types of real options
Be familiar with real options approach to capital budgeting
Be familiar with different types of options
Understand how risk-neutral and Black-Scholes models can be applied to real options valuation
Be familiar with the elements of corporate governance
Be familiar with the empirical research on the effects of corporate governance on the market value of a corporation
Understand the advantages and disadvantages of corporate diversification
Understand how the stock prices of bidders and targets react around the time of acquisition announcements
Be familiar with the empirical evidence regarding the gains from mergers and acquisitions
Analyse simple numerical examples of efficient takeover activity
Detail the argument of Grossman–Hart (1980) regarding the impossibility of efficient takeovers
Explain venture capital and equity issuance in the public market
Perform valuation with multiple financing rounds
Understand how to calculate ownership structure in initial public offerings and seasoned equity offerings
Be able to explain and evaluate the winners’ curse problem
Explain why and how companies manage risk
Explain and evaluate the cost of hedging
Understand covered and uncovered interest rate parity
Be familiar with the methods of interest rate risk

Course Contents

Introduction to the Course. Why is Finance Corporate? The Foundations for Proper Financial Analysis of the Firm
The advantages of corporate firm over the sole traders and partnerships. The life-cycle of the corporation at the capital market: funds raising, investing and benchmarks, returning money to investors at the capital market. The functions of corporate financial manager. The role of capital market in explaining corporate performance: main assumptions. The consumption choice and the first Fisher separation theorem. No arbitrage rule and the principle of tracking (replicating) portfolio. The sources of NPV. The differences between financial model of corporate analysis and accounting model. The role of corporate finance in building financial model of the firm.
Сapital Structure Choice and Corporate Value
The assumptions of Modigliani&Miller theorem on capital structure. The arbitrage argument and replicating portfolio of investor in M&M world. The M&M propositions I and II. The cost of capital: traditional and M&M approaches. The propositions I and II with corporate income taxes. The effect of personal taxes on capital structure. Miller equilibrium for the firm and for the investor.
Leverage and WACC, Corporate Value
The WACC and the principles of corporate return analysis. 2nd proposition of Modigliani&Miller theorem on capital structure. The arbitrage argument distress’ direct and indirect costs. Debt holder - equity holder conflicts: debt overhang problem, shareholder's incentives, the ways to minimize the conflicts. The trade-offs theory of capital structure. The pecking order of financing theory. The dynamic capital structure theory versus static. The information conveyed by financing choices decision. Signaling concept of capital structure. Adjusted present value (APV): base case value, side effects values, multiple discount rates. Advantages of APV for capital budgeting and valuation. The criteria for optimal capital structure.
Dividend Policy and Corporate Value: Theory and Evidence
Types of dividend: cash dividend, forms of share repurchase. The Modigliani& Miller dividend irrelevance theorem. The effect of market imperfections (taxes and transaction costs) on dividend policy. The effect of market frictions on distribution policy. The dividend controversy. The rightists concepts of dividends. Clientele theory: assumptions, empirical evidence. Signaling theory of dividends: the information content of dividends, dividends as mixed signal, empirical evidence. The leftists on dividend policy. Lintner stylized facts modelling. Empirical research on distribution policies.
Corporate Investing Policies and Value Creation
What is risk-free investment project? Competitive advantage and value creation. Incremental cash flows and incremental value. Net present value rule, its assumptions and value additivity rule. The sources for positive net present values. Internal rate of return (IRR) and financial approach to corporate return analysis. The limitations of IRR. Modified IRR. Discounted payback (DPB). Profitability index (PI). Economic value added (EVA) and economic profit generated by the project. EVA versus NPV. Capital budgeting in inflationary environment: nominal approach, real terms approach. Multiples approach. Using present value techniques to value stocks and bonds.
Valuing Corporate Strategic Opportunities and Flexibility: Corporate Real Options.
Strategic options of the corporation and the limitations of DCF analysis. Real option valuation: main assumptions, the difference in treatment of parameters between financial and real options. Decision trees. The use of risk neutral approach, binomial and Black-Scholes models in real option valuation. Valuing option to abandon, to postpone, to expand. OPM as a tool of quantifying managerial flexibility. The benefits of real option valuation over DCF project analysis. The use of OPM in corporate valuation. Put-call parity and its application to the corporation: corporate securities as options. The use of OPM in the analysis of corporate cost of capital: warrants and convertibles.
Corporate Governance
Separation of ownership and control. Financial architecture. Management incentives; management shareholdings and firm value. Corporate governance.
Equity Financing
Private equity financing. Venture capital and equity issuance in the public market. Valuation with multiple financing rounds. Ownership structure in initial public offerings and seasoned equity offerings. IPO underpricing and winners’ curse problem
The Market for Corporate Control: Mergers&Takeovers
Types of mergers and takeovers. The principles of valuation of mergers and takeovers. Stand - alone value of the target and of the buyer. Payment methods. Efficiency theories of M&A activities: differential efficiency, inefficient management, synergy effects theory. The sources and types of synergy. Agency theories of M&A. Signaling theories of M&A. Hostile takeovers and free - rider problem. Management defences. Empirical evidence.
Corporate Risk Management and Hedging
The motivation to hedge. Hedging and the firm’s stakeholders. Bankruptcy costs and costs of financial distress. The methods of interest rate risk management. Foreign exchange risk management. Application of risk management to industrial firms. Financial instruments for hedging.

Assessment Elements

Midterm exam
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Class participation
Home assignments
Includes written and online home assignments
Exam in December
Final Exam
Group assignment

Interim Assessment

Interim assessment (2 module)
0.1 * Class participation + 0.44 * Exam in December + 0.17 * Home assignments + 0.29 * Midterm exam
Interim assessment (4 module)
0.1 * Class participation + 0.45 * Final Exam + 0.1 * Group assignment + 0.1 * Home assignments + 0.25 * Interim assessment (2 module)

Bibliography

Recommended Core Bibliography

Financial markets and corporate strategy, Hillier, D., 2012
Principles of corporate finance, Brealey, R. A., 2017

Recommended Additional Bibliography

Asquith, P., & Mullins, D. W., Jr. (1983). The Impact of Initiating Dividend Payments on Shareholders’ Wealth. The Journal of Business, (1), 77. https://doi.org/10.1086/296187
Ball, R., & Brown, P. (1968). An Empirical Evaluation of Accounting Income Numbers. Journal of Accounting Research (Wiley-Blackwell), 6(2), 159–178. https://doi.org/10.2307/2490232
Bradley, M., Desai, A., & Kim, E. H. (1988). Synergistic gains from corporate acquisitions and their division between the stockholders of target and acquiring firms. Journal of Financial Economics, 1, 3.
Corporate finance, Berk, J., 2007
Financial theory and corporate policy, Copeland, T. E., 2005
Healy, P. M., & Palepu, K. G. (1988). Earnings information conveyed by dividend initiations and omissions. Journal of Financial Economics, 2, 149.
Healy, P. M., Palepu, K. G., & Ruback, R. S. (1992). Does corporate performance improve after mergers? Journal of Financial Economics, 2, 135.
Jarrell, G. A., & Poulsen, A. B. (1989). The Returns to Acquiring Firms in Tender Offers: Evidence from Three Decades. FM: The Journal of the Financial Management Association, 18(3), 12–19. https://doi.org/10.2307/3665645
Jarrell, G. A., Brickley, J. A., & Netter, J. M. (1988). The Market for Corporate Control: The Empirical Evidence Since 1980. Journal of Economic Perspectives, 1, 49.
Jensen, M. C. (1986). Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers. American Economic Review, 2, 323.
Jensen, M. C., & Ruback, R. S. (1983). The market for corporate control : The scientific evidence. Journal of Financial Economics, 1–4, 5.
Masulis, R. W. (1983). The Impact of Capital Structure Change on Firm Value: Some Estimates. Journal of Finance, 1, 107.
Michael C. Jensen, & William H. Meckling. (1976). Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsbas&AN=edsbas.608A4D5A
Miles, J. A., & Ezzell, J. R. (1980). The Weighted Average Cost of Capital, Perfect Capital Markets, and Project Life: A Clarification. Journal of Financial and Quantitative Analysis, 03, 719.
Miller, M. H. (1977). Debt and Taxes. Journal of Finance, 2, 261.
Modigliani, F., & Miller, M. H. (1958). The Cost of Capital, Corporation Finance and the Theory of Investment. American Economic Review, 48(3), 261. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=bsu&AN=8798249
Modigliani, F., & Miller, M. H. (1963). Corporate Income Taxes and the Cost of Capital: A Correction. American Economic Review, 53(3), 433.
Myers, S. C. (1977). Determinants of corporate borrowing. Journal of Financial Economics, 2, 147.
Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 2, 187.
Poterba, J. M., & Summers, L. H. (1988). Mean reversion in stock prices : Evidence and Implications. Journal of Financial Economics, 1, 27.
Sanford J. Grossman, & Oliver D. Hart. (1980). Takeover Bids, the Free-Rider Problem, and the Theory of the Corporation. Bell Journal of Economics, 1, 42.
Shleifer, A., & Vishny, R. W. (1986). Large Shareholders and Corporate Control. Journal of Political Economy, 3, 461. https://doi.org/10.1086/261385
Shleifer, A., & Vishny, R. W. (1989). Management entrenchment : The case of manager-specific investments. Journal of Financial Economics, 1, 123.
Stephen A. Ross. (1977). The Determination of Financial Structure: The Incentive-Signalling Approach. Bell Journal of Economics, 1, 23.
Sudipto Bhattacharya. (1979). Imperfect Information, Dividend Policy, and “The Bird in the Hand” Fallacy. Bell Journal of Economics, 1, 259.
Travlos, N. G. (1987). Corporate Takeover Bids, Methods of Payment, and Bidding Firms’ Stock Returns. Journal of Finance, 4, 943.
Warner, J. B. (1977). Bankruptcy Costs: Some Evidence. Journal of Finance, 2, 337.

Course Syllabus